Sinomania!

After just 4 years in China Google wants to take its ball and go home. The snap decision is a surprise for a company famous for not losing its cool. Co-founder Sergey Brin is behind the decision to pull the plug on Google China. Brin, born in the Soviet Union, wants to embody Google’s pompous corporate motto “do no evil.” Yet his company had no problem appeasing Beijing’s Internet regulations while it tried to build its business and brand in China. And Brin himself admits that Google blocks material in the USA, France, and Germany - just to name a few instances. A simple warrant is all Google requires to hand over to US feds data on its users going back 180 days.

Last week Google’s chief Legal Officer flamed China’s central government (and by association Chinese people) on the official Google blog with a cryptic ultimatum that it may “shut down Google.cn, and potentially our offices in China” over a hacker attack. But could Google’s knee-jerk reaction become one of the biggest corporate blunders in American history?

Google first tried to enter China the Yahoo! way by buying a Chinese Internet company. But Google went small taking only a 2% stake in Baidu the leading Chinese search engine portal. Google set up its China business in January 2006 choosing the Chinese name “Gu Ge” meaning “harvesting song.” A few months later Google partnered with China Mobile and invested $50 million for a venture to develop mobile services. Not long after that Google sold its stake in Baidu after Baidu went public on NASDAQ and pocketed a nice return of approximately $63 million. Google chose Taiwan born Kai-fu Lee to head up the Beijing office and said it was in it for the long haul, a must for any foreign business in China.

But Google couldn’t bring it. Kai-fu Lee quit Google China last year to head a Beijing venture capital firm to nurture Chinese Internet startups that will compete directly with Google. Four years on Google is no match for Baidu which consistently claims over 60% of the Chinese search market. Google’s share is flat and falling. According to marketing research company comScore Google’s share of the Chinese search market sank to just 14% last November. And search is just one failure of Google in China.

Google’s main focus in China is mobile phones and related services. Investments in Chinese companies such as Xunlei (a video download service) all seemed to fizzle and somehow end up in Baidu or another company’s favor. China Mobile, with more subscribers than any other telecom, now plans to open its own apps store and develop its own services. Google had plans to launch smart phones in China based on its Android operating system. That was cancelled this week.

The loss of what will most likely be the world’s largest market for smart phones and the apps and mobile advertising that come with them means Google’s showdown has serious implications for its future. Sure most Americans think Google is number 1 everywhere in everything but need Google be reminded that at its peak in 2000 Yahoo! shares also cost three digits and its market capitalization of $120 billion was not far off Google’s worth today?

Google dropped its bomb on China in a blog post with links to reports of the overtly anti-China US-China Economic and Security Review Commission. Within hours Secretary of State Hillary Clinton announced she had been “briefed” by Google and helped spin a media cycle in which Google purchased ads in print media and online to imply its business entanglements are a human rights issue.

Fact is Google is embedded in the Obama White House. Google was the number 3 contributor to the Obama campaign. CEO Eric Schmidt (sitting next to Obama in the photo) sits on the President's Council of Science and Technology Advisers. Three other Google executives are in White House positions including Sonal Shah of Google global development and Andrew McLaughlin head of Global Public Policy and Government Affairs for Google who is the White House's Deputy Technology "czar".


On his first official visit to China Obama told a group of Shanghai youths that the USA considered unfettered Internet access a universal human right and tut-tutted over censorship. Last week Secretary Clinton enshrined the view in her lengthy “Internet Freedom” speech. Billed as a major policy initiative the speech mentioned China throughout and contained a direct ultimatum to Beijing to “conduct a thorough review of the cyber intrusions that led Google to make its announcement.” Afterwards Hillary took questions from an audience filled with plants from front groups and organizations affiliated with the NED (National Endowment for Democracy).

The scold on Internet Freedom is odd considering Hillary believed the Internet needed “gatekeepers” back in 1998. And how relevant is Internet Freedom for the world? Fully a quarter of Americans do not even have the Internet in their homes and broadband access in the USA is one of the lowest in the so-called “developed” world. But to Obama’s crowd America equals the Internet and the Internet equals Google.

NO EVIDENCE FOUND

Google was not alone in the hacker attack. Over 30 multinationals were affected by what was apparently called “Operation Aurora.” But there is no evidence the Chinese government was behind it. American Internet security firms Verisign, Adobe, and McAfee pointed fingers and Microsoft admitted that an unrevealed flaw in Internet Explorer was used by the culprits. Google even suspected its own employees. Headlines in the mainstream media declared “Evidence Found for Chinese Attack” (to quote the New York Times’s lead) when a malware sleuth found a circumstantial link but no direct evidence of Chinese involvement. The attack could just as likely have been a psyop from a rival company or government intent on framing Beijing.

Google now says it wants to stay in China and is working behind the scenes with Beijing regulators. And Google’s co-founders will sell enough stock to reduce their control down to 48% indicating the company may yet be run on business pragmatism over emotion. But the message that China attacked Google is sticking and the incident shows clearly who guides China policy in the Obama White House.

(c) copyright, Ben Calmes 2010
(Disclaimer: the author owns shares of Google via a mutual fund)